Exam 21: Accounting Changes

An asset that cost $9,000 on January 1, 20x1, was being depreciated using the straight-line method over five years with an estimated residual value of $1,500.At the beginning of 20x3, the company decided to use a six-year life and a residual value of $600. (a)Give any correcting entry at January 1, 20x3. (b)Give the 20x3 adjusting entry to record depreciation.

When a firm changes only the estimated residual value of equipment:

A corporation has a machine that cost $100,000, with an estimated useful life of 5 years and a residual value of $25,000.Immediately after the end of the second year, the company decided to change from SYD to straight-line depreciation.The entry to record the change would include an effect on accumulated depreciation which would be a:

If a change in an accounting estimate affects the current period and future periods, the retrospective reporting approach must be used.

A change in the estimated useful life of a building:

A change in accounting principle occurs when a company adopts a principle that is different from a previously used principle that is also generally accepted.

Which one of the following statements is not correct?

The errors listed below occurred in 20x3 but were not discovered until much later in 20x4 The accounting period ends December 31. What net effect did these errors have on 20x3 pre-tax income?

The records for OTC Inc.showed the following for 20x2: Cash paid during the year on expenses, $4,000. The amount of expense that should be reported on the income statement is: $ _.

A plant asset was purchased for $19,000 on 1/1/x0 with a residual value of $2,000 and useful life of five years.In 20x3, the total useful life is re-estimated to be seven years and the estimated salvage value is assumed to be zero.Sum-of-the-year's-digits depreciation is used.What is depreciation expense in 20x3?

An asset that originally cost $6,000 is being depreciated on the straight-line basis over an estimated useful life of 5 years.The estimated residual value was $1,500.Near the end of year 3, it was decided that better estimates would have been a total life of 6 years and a residual value of $800.Depreciation expense for year 3 would be:

An understatement of accrued wages will, if not corrected, cause income for the current and following reporting period, separately, to be overstated.

The records of CTC reported rent expense for 20x5 (paid in cash during 20x5)of $53,500.An audit revealed that the following accrued and prepaid amounts were not recorded in the adjusting entries for 20x4 and 20x5: What amount should have been reported for 20x5 rent expense?

A change in the salvage value of a depreciable asset should be accounted for as a:

On January 1, 20x3; a company purchased an operational asset for $44,000.At the date of purchase, the full amount was debited to expense.At the end of 20x6, the audit discovered this error.The asset had no residual value and should be depreciated over 10 years, using the sum-of-years'-digits method.Give the entry at the end of 20x6 to correct the accounts.Assume the accounts for 20x6 have not been closed.

Changes in estimates and prospectively-applied accounting policy changes occur more often in practice than do retrospectively-applied accounting policy changes.

Changes in accounting policy are always voluntary in nature.

On December 25, 20x2, JKL ordered merchandise for resale from QRS that cost $7,000 (terms cash within 10 days).QRS shipped the merchandise f.o.b.shipping point on December 28, 20x2, and the goods arrived on January 2, 20x3.The invoice was received on December 30, 20x2.JKL did not record the purchase in 20x2 and did not include the goods in the 20x2 ending inventory.The effects on JKL's 20x2 financial statements were:

On January 1, 20x1, DB purchased equipment that cost $48,000.It was depreciated on the straight-line basis for the years 20x1, 20x2 and 20x3 (estimated useful life 5 years and no residual value).During early 20x4, DB changed the estimated total useful life to 7 years and the residual valu to $3,200 at the end of year 7. (a)Give any entry required during 20x4 by DB to reflect the change.If none is required, explain why (b)Give the adjusting journal entry required on December 31, 20x4.

An asset that cost $49,500 was being depreciated on a sum-of-the-years'-digits basis over five years with an estimated residual value of $4,500.After the end of the third year, it was decided to change t straight-line depreciation (ignore income taxes). (a)Give any required entry as of the beginning of year 4. (b)Give the adjusting entry to record depreciation at the end of the fourth year, taking into account the new decision.